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India, Ukraine and Sunflowers
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How an addiction to edible oil fuels India’s insecurities
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Good Morning Dear Reader,
Yesterday, Russia officially invaded Ukraine.
Things are still fairly dynamic, but at the time of writing this, 137 civilians and military personnel have been killed so far, according to Ukrainian President Volodymyr Zelenskyy. I imagine that number will only rise in the days and weeks to come, as the possibility of a global intervention fades away.
Closer to home, we know that there are thousands of Indian students enrolled in Ukrainian higher education institutions—mostly pursuing degrees in medicine. If you have friends or family members in Ukraine right now, I hope things work out and your loved ones are returned to you safely. Be strong. Good luck.
Before anything else, let me add that everything I am going to write today is trivial compared to the visuals and stories of the death and destruction from Ukraine. But it’s important to talk about what this means, because the long-term repercussions are far-reaching.
So, in today’s edition, I’m writing about what the war in Ukraine means for India from an economic perspective. It’s been a while since I wrote about economy and trade because there’s been so much action in business, technology, and vaccines over the past year or so. But things like 10-minute grocery delivery and crypto regulations appear insignificant in the face of war, so here we go.
Quite unexpectedly, the central topic of today’s edition is about something quite unexpected, and I was fairly astonished when I found out about it. It’s something that’s there in all of our kitchens.
Sunflower oil.
If you want to know what will be the biggest economic impact as a result of the war in Ukraine, especially for India, the answer is sunflower oil.
And this is where India’s problems begin.
Let’s dive in.
Pouring edible oil on troubled waters
[Photo by Todd Trapani on Unsplash]
I’ll start with a quiz question.
Oil comes in two forms—non-edible and edible. We know non-edible oil, which is broadly sourced from crude oil and used to manufacture fuels, plastics, etc. Globally, China is the world’s largest importer of crude oil.
Edible oil, on the other hand, is made from plants. Palm. Coconut. Sunflower. Essentially, it’s stuff that we put in our food and has applications in food-grade products like toothpaste, cosmetics, and the like.
So here’s my question—which country is the world’s largest importer of edible oil?
If you answered China, nope, you are wrong.
It’s India that imports more edible oil than any other nation on earth.
On the face of it, this sounds ridiculous. You’d think that of all countries, surely India would be a net producer of vegetable oils, given the significance of agriculture as an occupation. India also has a broadly favourable climate for growing edible oil plants such as palm, coconut, rapeseed, and groundnut, so this fact somewhat boggles the mind.
Well, okay, I’ll explain.
Here are the numbers.
According to the latest data, each Indian consumed 19.5 kg of edible oil every year on an average during 2015-16, up from 15.8 kg in 2012-13. This amounts to an aggregate demand of around 26 million tons of edible oils per year.
Leaving aside the debate on the health effects of increase in oil consumption and its role in the prevalence of lifestyle diseases, let us examine the demand-supply position of edible oils in India.
India cultivated oilseeds on 25 million hectare of land, producing 32 million tons of oilseeds in 2018-19, with soybean, rapeseed and mustard and groundnut accounting for almost 90 per cent share in the area.
Assuming a country-wide average of 28 percent oil recovery, 32 million tons of oilseeds will yield around 8.4 million tons of edible oil. The domestic production can only meet a little over 30 per cent of the total demand for edible oils, necessitating its import.
In 2019, India imported around 15 million tons of edible oils worth approximately Rs 7,300 crore, which accounted for 40 per cent of the agricultural imports bill and three per cent of the overall import bill of the country.
How India can be ‘atmanirbhar’ for edible oil production, DownToEarth
Think about that for a moment. Nearly 40% of the agricultural import bill went towards procuring edible oils. That’s how wide the gap is between demand and supply for edible oils in India. In fact, the weird part is that since global prices of vegetable oils fluctuate like crazy, it’s impossible to predict how things will pan out.
Take last year, for instance, when India managed to keep demand for vegetable oils flat and still had to pay 63% higher than what it paid the previous year.
But it’s impossible to keep demand under control for an extended period of time.
In fact, if anything, it’s only going to increase even more in the coming years. According to B V Mehta, executive director of the gloriously-titled Solvent Extractors’ Association, consumption is expected to climb by 17% in the next four years, and he estimates that we’ll be importing edible oil for the next fifteen years, if not longer.
Essentially, we have an edible oil addiction and we can’t produce it on our own. Which leaves India vulnerable—mostly to countries who have edible oil.
I’ll explain why India can’t produce enough edible oil in a bit, but first, it’s important to understand where India gets its edible oil from.
Here’s the graph, sourced from that fantastic article from DownToEarth that I’ve linked above.
Palm oil forms the bulk of India’s edible oil imports and is sourced from two countries—Malaysia and Indonesia. The reason why palm oil is right at the top of the list is because it’s versatile and can be used for a range of applications. And since Malaysia and Indonesia are close by, transportation costs are also on the lower side. In fact, globally, both these countries have a near monopoly on palm oil production, accounting for 85% of the world’s production.
So what happens when the world’s biggest importer and the world’s biggest exporters have a tiff? Nothing great, because it leaves all three countries in a vulnerable position.
Which is basically what happened in 2020.
It all started in January that year.
Indian palm oil importers have effectively stopped all purchases from top supplier Malaysia after the government privately urged them to boycott its product following a diplomatic spat, industry and government sources said.
The warning, issued last week, comes almost in parallel with New Delhi’s move to restrict imports of refined palm oil and palmolein after Malaysia’s Prime Minister criticised India’s actions in Kashmir and its new citizenship law.
Consequently, Indian importers were not buying any crude or refined palm oil from Malaysia, at least five industry sources familiar with the matter told Reuters.
“Officially there is no ban on crude palm oil imports from Malaysia, but nobody’s buying due to government’s instructions,” said a leading refiner, adding that buyers now import from Indonesia despite paying a premium to prices in Malaysia.
Exclusive: India urges boycott of Malaysian palm oil after diplomatic row – sources, Reuters
At first, this looked like a win because Malaysia was clearly affected.
But then, just a few months later, things were back to normal.
Indian buyers have resumed purchases of Malaysian palm oil after a four-month gap following a diplomatic row, with buying spurred by a fall in domestic inventories and discounted prices, trade sources said.
The renewed purchases come amid improving trade relations between the two countries after the formation of a new government in Kuala Lumpur, with Malaysia signing a deal last week to buy a record 100,000 tonnes of Indian rice.
Leading Indian importers last week contracted up to 200,000 tonnes of crude palm oil from Malaysia, the world's No.2 producer after Indonesia, to be shipped in June and July, the sources told Reuters.
India resumes purchases of Malaysian palm oil: Traders, Economic Times
I mean, sure, you could argue that India had its way here, but I think this came at a significant cost. Remember that India cannot afford to have its edible oil supply disrupted. So, over the last year or so, India has been trying to diversify its edible oil imports away from palm oil.
And you know what’s a great alternative?
That’s right. The humble sunflower oil.
If you’ve lived in India, you’ll probably remember the sheer number of sunflower oil ads you saw on television growing up. Sundrop. Saffola. Sungold. It even used to appear on Doordarshan in the nineties, usually marketed as a healthier form of oil, all in distinct yellow packaging.
Now here’s the part where I’ll blow your mind.
On a relative scale, sunflower oil production in India is next to nothing.
In fact, the majority of the sunflower oil we consume in India is imported.
From where?
Well, specifically two countries.
I think you can guess which ones.
Shipments of more than 350,000 tons of sunflower oil to India, the world’s biggest buyer, are at risk as Russia’s attack on Ukraine disrupts logistics and loadings at some ports.
Traders in the South Asian nation, also the top purchaser of palm and soybean oils, have contracted to import 550,000 tons of sunflower oil from Ukraine and Russia for deliveries in February and March, according to Sandeep Bajoria, president of the International Sunflower Oil Association.
About 180,000 tons have already left, but the fate of the rest is now uncertain, he said.
Ukraine and Russia account for almost 80% of the world’s sunflower oil shipments. India bought 1.89 million tons of the crude variety of the oil in the year ended October, with Ukraine supplying almost 74% and Argentina and Russia each accounting for about 12%.
Sunflower Oil Shipments to India at Risk on Ukraine Conflict, Bloomberg
This is why India’s position is difficult when it comes to edible oils.
It’s stuck in the middle, dependent on Indonesia and Malaysia in the east—which are becoming increasingly outspoken about India’s domestic policies—and Russia and Ukraine in the West, who are now at war.
All while demand for vegetable oils continues to rise steadily year after year, as more and more Indians use it for cooking their food everyday.
This crisis is just beginning.
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